person showing usa flag

Many traditional UK-based investors are cautious about buying stocks listed in other parts of the world. The recent rise of younger retail traders has helped in part to break this skepticism, with many popular millennial stocks being listed in the US. Yet even when looking for a conservative income based investing strategy, here’s why we’d still look to the US for top dividend stocks.

Benefitting from geographical diversification

When looking at building a long-term income portfolio, there are several points to consider. One the main ones is how to diversify the holdings so that if one top dividend stock stops paying out dividends, the overall income portfolio won’t be massively impacted.

By adding in stocks based in the US, this helps to diversify via geography. For example, last year the PRA came out and asked major UK listed banks to stop paying dividends. This restriction has now been lifted, but it was in play for much of 2020. In the US, banks and other financial services companies didn’t have the same issue. Clearly, some banks reduced the dividend anyway to conserve cash flow, but this wasn’t at the request of a regulator.

This one example helps to show how having top dividend stocks from outside of the UK can help to boost diversification.

Enabling more choice

Another reason we like to have exposure to the US is because it provides a much broader remit of stocks to pick from. In the UK, most dividend portfolios will be based around the FTSE 100. It has an average dividend yield of 3.5%. This is appealing, but I might want to boost this by looking at stocks based outside of the FTSE.

As we recently published, the top 20 US dividend stocks offer me some attractive yields. Exxon Mobil currently comes in at 5.6%, with AT&T at 7.7%. Having the choice to include these into my income portfolio could help to boost my overall yield over time.

Having top US dividend stocks within the ISA

The third reason for liking US dividend stocks is that they can be held within a Stocks and Shares ISA. Most providers have this option, which means that any dividends I receive won’t have to be reduced by tax. The ISA is a tax wrapper that enables me to enjoy profits without capital gains and dividend tax.

Not all assets can be included within the ISA, but US dividend stocks tick the box. Therefore, it makes sense to include some of these into my ISA over time. This is especially true if when wanting to build up a dividend portfolio that can build over years. Reinvesting dividends back into stocks allows for compounding. 

There are risks in this regard. Dividends can be cut without much notice, and aren’t guaranteed to be paid into the future. Depending on where we are resident or domiciled, buying US stocks may carry with it additional taxes or checks not explained here. This is up to the individual investor to check.

Overall, we favour adding in top US dividend stocks to any income portfolio.

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